The Private Equity world is awash with cash looking for a home....

The Private Equity world is awash with cash looking for a home.
Australia is increasingly being viewed as a good country to invest in with relative political stability and security. Very low sovereign risk and a legal system that is reliable and predictable.

PE targets tend to look at companies that have good market share, strong growth prospects, low to modest competition, great cash generators and in some circumstances weakness at the top of the organisation.

Bapcor ticks many of these boxes.

Market share - auto parts is dominated by Bapcor and Repco with Supa Cheap playing in the retail channel. There is plenty of fragmentation but over the past few years that has lessened and that trend will continue.

Bapcor is a strong cash generator and continues to pay divides and fund its internal growth, where its borrowings have grown is when it makes acquisitions.

Recently Bapcor lost its long term amd hugely respected CEO following a board room stoush with a Chairman with good corporate experience but a lack of auto experience. The market did not like it and cut the share price by 25% in response and has stayed there ever since.

The Board then fluffed the new CEO appointment and instead of hiring an exec with industry experience opted for the lazy option of elevating the CFO. No disrespect to him, but really? The guy came out of a failed wine business Treasury wines.

The opportunity for private equity is to take out Bapcor with a much better financing structure with access to plenty of cash and cheap funding. Commercial vehicles and electric vehicles is a massive opportunity. No one in auto parts has grappled with the EV future. Whoever does it first wins.

The other massive tailwing starting to blow right now is the massive retention of second hand cars in Australia and NZ in response to Covid-19. The greater number of second hand cars on the road driving to work and going on driving holidays will grow auto parts demand significantly over the next few years giving companies like Bapcor time to refine their EV offering.

And Bapcor is yet to team up with a car finance provider. This is a massive opportunity just look a t the success of MNY.

I think there is a very interesting 12-18 months ahead for Bapcor shareholders and the Board.